Research Overview
- Analyze cases where mainnet foundations provided incentives to Lending and LST protocols.
- Analyze the scale of incentives distributed to Lending/LST protocols and their impact on TVL and on-chain activity.
- Based on these findings, project TVL and on-chain activity for TRN based on varying levels of incentive distribution.
Case Study: Incentive Distribution for Lending/LST Protocols
1. Analysis of Incentive Effectiveness by Protocol
| Protocol Name |
Mainnet |
Period |
Incentive Amount |
Avg. TVL during period |
Avg. MAW during period |
| Aave (Lending) |
Avalanche |
21.09 - 22.04 |
$100M in $AVAX |
$2.8B |
11,585 |
| Benqi (Lending, LST) |
Avalanche |
21.09 - 22.04 |
$40M in $AVAX |
$1.2B |
8,848 |
| Navi (Lending, LST) |
Sui |
23.10 - 24.08 |
$2.5M in SUI |
$100M |
- |
| Suilend (Lending) |
Sui |
24.04 - 24.08 |
$1M in SUI |
$45M |
- |
| Scallop (Lending) |
Sui |
23.10 - 24.08 |
$2.5M in SUI |
$110M |
- |
- Key Mainnets for Incentive Distribution:
- Avalanche: Large-scale incentive distribution immediately after Lending protocol launches through the Avalanche Rush program.
- Sui: Continuous distribution of incentives for Lending protocols post-launch, instead of one-off programs.
- Observations: Incentives were generally distributed over 6-10 months, during which protocols attracted TVL equivalent to 30-40x the incentive amount, leading to an expected APR of 3-6%.
- As Lending protocols already reward users with deposit interest and protocol-native tokens, additional incentives alone yield relatively low expected APR, making the TVL-to-incentive ratio particularly high.
Conclusion: When distributing incentives to Lending/LST protocols, the expected APR is 3-6%, and a 6-month incentive period typically attracts TVL of 30-40x the incentive amount.
2. Ecosystem-Level Effects of Incentive Distribution
Incentive distribution for Lending/LST protocols extends beyond increasing TVL for individual protocols. The deposited assets are not locked but are used for lending or LST liquidity provisionamplifying their impact across the ecosystem:
- Lending Protocols: Generate additional liquidity through loans, which can be deployed in other protocols.
- LST Protocols: Unlock liquidity from staked assets, allowing reinvestment into DeFi activities.
Case Studies:
- Avalanche Ecosystem:
- As of Dec. 1, 2021, during peak Lending/LST incentives, Avalanche’s total TVL reached $11.42B, approximately 2x the TVL of its major Lending protocols (Aave: $3.55B, Benqi: $1.77B).
- TVL growth in Lending protocols preceded and triggered growth in DEX TVL, demonstrating the pivotal role of Lending/LST in ecosystem activation.
| 2021/12/01 |
TVL |
Protocol Type |
| Total |
$11.42b |
|
| AAVE |
$3.55b |
Lending |
| Trader Joe DEX |
$2.58b |
DEX |
| Benqi Lending |
$1.77b |
Lending |
| Blizz Finance |
$1.18b |
Lending |
| Curve DEX |
$1.14b |
DEX |
- Sui Ecosystem:
-
On May 1, 2024, during its Lending/LST incentive program, Sui’s total TVL was $640M, roughly 2.3x the TVL of its Lending/LST protocols combined ($276M).
-
Similar to Avalanche, the TVL growth in Lending/LST protocols catalyzed growth in other protocols, primarily DEXs.
| 2024/05/01 |
TVL |
Protocol Type |
| Total |
$640M |
|
| Navi |
$124M |
Lending |
| Suilend |
$40M |
Lending |
| Scallop |
$112M |
Lending |
| Others |
$364M |
mainly DEXs |
Conclusion: Ecosystem TVL tends to grow 2-2.3x the TVL of Lending/LST protocols, with their activation serving as the initial driver for broader ecosystem growth.